With the election over, conventional thinking says that it’s going to be smooth sailing for stocks. The uncertainty hovering over the market has been removed as fast as the political signs from your neighbors’ front yard. But 2018 was a rough year for some of the benchmarks in the Dow Jones Index, and the correction that overtook the market in October put these stocks in a hole that they have yet to completely climb out.
Some of these companies present a good buying opportunity as investors look to 2019. Others may have some questions that they still have to answer. Maybe they’ll make a recovery in the short term. But maybe they won’t. Do you buy, sell, or hold?
In this slideshow, we look at seven stocks in the Dow Jones Index that are lagging behind the market in 2018. They may be a question of good stocks in a bad situation, or it may be an indication of something more serious. Either way, you should look at each of these stocks carefully to decide if they should be part of your portfolio.
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- Caterpillar, Inc.
- IBM
- Dow DuPont
- Home Depot
- Chevron Corp.
- 3M Company
- Exxon Mobil
#1 - Caterpillar, Inc. (NYSE:CAT)
Caterpillar, Inc. (NYSE: CAT) Many analysts seem to be viewing Caterpillar as a stock that represents a great buying opportunity. Recently 27 analysts gave guidance that suggested that Caterpillar’s stock could rise up to 30% above its October low. The stock was battered in October reporting a -20.4% return in that period, bringing its return for the year down to a -14.3%. Like 3M, Caterpillar is facing some challenges in near-term earnings periods as a stronger dollar, increased freight costs, and potential tariff issues will continue to weigh on the sector. However, the larger issue for Caterpillar seems like a case of managing expectations – or trying to determine what reasonable expectations should be. Their latest earnings report showed strong gains in both revenue and earnings per share, but the results weren’t as strong as expected. This reflected softening demand in Asia, and in particular China. Those fears were not unfounded as China’s economy reported its weakest third quarter since the Great Recession. However, the question has to be asked if Caterpillar is an example of a good stock that was the victim of an overreaction. The company is forecasting positive earnings guidance for the fourth quarter, including accelerated growth from China. Like many companies, there would be a lot more clarity about Caterpillar were the noise about trade and tariffs to subside.
About Caterpillar
Caterpillar Inc manufactures and sells construction and mining equipment, off-highway diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives in worldwide. Its Construction Industries segment offers asphalt pavers, compactors, road reclaimers, forestry machines, cold planers, material handlers, track-type tractors, excavators, telehandlers, motor graders, and pipelayers; compact track, wheel, track-type, backhoe, and skid steer loaders; and related parts and tools.
Read More - Current Price
- $366.04
- Consensus Rating
- Hold
- Ratings Breakdown
- 7 Buy Ratings, 6 Hold Ratings, 4 Sell Ratings.
- Consensus Price Target
- $384.33 (5.0% Upside)
#2 - IBM (NYSE:IBM)
IBM (NYSE: IBM) IBM has had one of the roughest years among the Dow Jones components. The stock is down 18.6% for the year after a brutal 23.7% decline in October. In the summer, Warren Buffet sold a third of his shares in the company after it reported weaker than expected operating margins which led some analysts to question whether IBM would be able to meet their forecasted annual earnings. IBM has been conspicuously transitioning their business model from a hardware company to a business focused on software and analytics. It appears that for now, the transition is working. In early November, Ancestry along with several European startups announced plans to work with IBM's Cloud services for their artificial intelligence (AI), blockchain and Internet of Things (IoT) technologies. However, despite this good news, investors are seeing history repeating itself as IBM recently paid a high premium to buy out Red Hat which dilutes the value of their brand. The stock was already trading at a discount to a fair market value before the Red Hat announcement, but with the stock currently in dead last among the Dow 30 components, investors seem to be signaling that IBM may have some fences to mend before investors go all in with the stock.
About International Business Machines
International Business Machines Corporation, together with its subsidiaries, provides integrated solutions and services worldwide. The company operates through Software, Consulting, Infrastructure, and Financing segments. The Software segment offers a hybrid cloud and AI platforms that allows clients to realize their digital and AI transformations across the applications, data, and environments in which they operate.
Read More - Current Price
- $223.36
- Consensus Rating
- Hold
- Ratings Breakdown
- 6 Buy Ratings, 8 Hold Ratings, 3 Sell Ratings.
- Consensus Price Target
- $208.94 (6.5% Downside)
#3 - Dow DuPont (NYSE:DWDP)
Dow DuPont (NYSE: DWDP) Company mergers are notoriously tricky. And they generally don’t bode well for a company’s stock. Such is the case of Dow DuPont. The company’s stock price has had, to put it simply, a terrible year. After falling 16.2% in October, the stock was down 24% for 2018. Only IBM’s stock was ranked lower among the Dow Jones components. This is year two of the merger between the former chemical giants. The problem of the moment is that their long-term plan is incredibly complex and right now is hard for investors to get their mind around. According to the company, by the middle of 2019 current shareholders will own shares of three publicly traded companies which would include the Dow and DuPont names and add a farm-focused unit called Corteva Agriscience. While that sounds good, their current agricultural unit, which was one of their primary sources of growth, is suffering from lower sales, tighter margins, and unfavorable exchange rates. Since the start of November, shares are up 9% but still lag behind the S&P 500.
About DowDuPont
DowDuPont Inc, through its subsidiaries, engages in agriculture, materials science, and specialty products businesses in the United States, Canada, the Asia Pacific, Latin America, Europe, the Middle East, and Africa. The company's Agriculture segment produces, and sells hybrid corn seed and soybean seed varieties; sunflowers, wheat, alfalfa, canola, cotton, rice, and sorghum; silage inoculants; and crop protection products that include weed control, disease control, and insect control.
Read More - Current Price
- $30.52
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#4 - Home Depot (NYSE:HD)
Home Depot (NYSE: HD) As was the case with many stocks, October was a cruel month for Home Depot’s stock. The stock suffered a 15.1% decline which put the stock in the red for the year with a -1.2% return. One of the reasons for the decline in October focused on concerns about a slowing U.S. housing market. However at least one stock analysis firm, Gordon Haskett Research Advisors, prefers Home Depot’s stock to competitors such as Lowe’s and RH because they say HD is “investing offensively and better positioned to navigate a potentially choppy backdrop”. The reality is that Home Depot's stock may be undervalued and present a great buying opportunity for investors. The stock is currently trading at around 18X forward EPS estimates which are significantly down from the industry average of 25.7X forward EPS. And while the 18X number is slightly higher than Lowe's, it is less than its five-year median of 19X. Another positive sign for the stock is that it is expected to report favorable financial results for the third quarter.
About Home Depot
The Home Depot, Inc operates as a home improvement retailer in the United States and internationally. It sells various building materials, home improvement products, lawn and garden products, and décor products, as well as facilities maintenance, repair, and operations products. The company also offers installation services for flooring, water heaters, bath, garage doors, cabinets, cabinet makeovers, countertops, sheds, furnaces and central air systems, and windows.
Read More - Current Price
- $392.60
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 23 Buy Ratings, 6 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $426.00 (8.5% Upside)
#5 - Chevron Corp. (NYSE:CVX)
Chevron Corp. (NYSE: CVX) You don’t have to look very far to see why Chevron’s stock may be falling. Oil prices have been noticeably falling. While this is good for consumers at the gas pump, it can be troublesome for the oil and gas companies that rely on higher oil prices to provide a positive return on their company’s investments. Chevron’s stock dropped 8.7% in October to put it at -3.5% for 2018. The good news for investors is that Chevron is expected to report positive earnings when they issue their next earnings report in February of 2019. They are expected to report an EPS of $2.56, which would mark a nearly 250% year-over-year increase. Revenue is also expected to come in higher at $44.79 billion, which would be a nearly 20% increase from the previous quarter. However, recent reports are citing that Chevron is considering pulling out of their joint venture in Venezuela, a country where Chevron remains the last major U.S. oil company. Meanwhile, the industry as a whole is facing headwinds, and some analysts are projecting oil prices to stay in a tight range at levels not too far above their current level. The best course of action for investors at this point may be to stay on the sidelines until the near-term outlook for oil prices becomes clearer.
About Chevron
Chevron Corporation, through its subsidiaries, engages in the integrated energy and chemicals operations in the United States and internationally. The company operates in two segments, Upstream and Downstream. The Upstream segment is involved in the exploration, development, production, and transportation of crude oil and natural gas; processing, liquefaction, transportation, and regasification of liquefied natural gas; transportation of crude oil through pipelines; transportation, storage, and marketing of natural gas; and carbon capture and storage, as well as a gas-to-liquids plant.
Read More - Current Price
- $142.85
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 14 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $175.19 (22.6% Upside)
#6 - 3M Company (NYSE:MMM)
3M Company (NYSE: MMM) 3M is a company that is going against the grain. Where the trend for most companies is to consolidate their business units to focus on their core competencies and/or the areas where they are most profitable, 3M is broadening their product base. However, their stock has been taking a beating in 2018. In the month of October, a month that was brutal for many stocks, MMM suffered a decline of 9.7%. This brought their year-to-date performance to a -14.5%. 3M has tended to sell products that can command a premium price which has allowed them, in good times, to show investors growth in revenue and earnings per share (EPS). That hasn’t been the case lately. In their most recent earnings report, issued in early October, the company missed on both their revenue and earnings per share estimates. Their stock subsequently took a hit. And although 3M is a Dividend King, having delivered 60 years of dividend growth, investors have to ask whether that is reason enough to own the stock. The industrial sector faces continued uncertainty by the ongoing trade dispute with China, the threat of inflation which is being manifest in a strengthening U.S. dollar. For investors who had 3M in their portfolio before the stock tumbled, now might be the time to hang on tight and hope for a bit of a recovery before considering selling, but investors should exercise caution before viewing the stock as a buying opportunity.
About 3M
3M Company provides diversified technology services in the United States and internationally. The company's Safety and Industrial segment offers industrial abrasives and finishing for metalworking applications; autobody repair solutions; closure systems for personal hygiene products, masking, and packaging materials; electrical products and materials for construction and maintenance, power distribution, and electrical original equipment manufacturers; structural adhesives and tapes; respiratory, hearing, eye, and fall protection solutions; and natural and color-coated mineral granules for shingles.
Read More - Current Price
- $129.28
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 11 Buy Ratings, 3 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $144.87 (12.1% Upside)
#7 - Exxon Mobil (NYSE:XOM)
Exxon Mobil (NYSE: XOM) Exxon Mobil is another oil and gas stock that saw a stiff decline in their stock price during the month of October. The stock plummeted 6.3% which put it into the red at -0.7% for 2018. XOM recently reported positive earnings for the third quarter, but questions remain as to whether the recent positive earnings trends will continue. On November 8, oil officially entered into a bear market territory, and that tends to reflect negatively on the stock prices of major energy providers. However, there are some fundamental concerns about Exxon Mobil’s stock that are making investors nervous. One is falling production. When an oil company is seeing a decline in production, it means their business is shrinking. The company saw a 2.7% decline in 2016 and 2017. By itself, this wasn’t too concerning for investors, but production declines have continued into 2018 when oil was surging. And in their Q2 earnings call, Exxon essentially told their shareholders that they were focusing on long-term plans, which meant that in the short-term, their growth may continue to decline. Another fundamental trend that is working against the stock is that Exxon’s return on invested capital has moved from being among the best in its sector to somewhere in the middle of the road. Once again, Exxon is staying committing to their long-term plans, but it remains to be seen if that approach will pacify investors.
About Exxon Mobil
Exxon Mobil Corporation engages in the exploration and production of crude oil and natural gas in the United States and internationally. It operates through Upstream, Energy Products, Chemical Products, and Specialty Products segments. The Upstream segment explores for and produces crude oil and natural gas.
Read More - Current Price
- $105.87
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 11 Buy Ratings, 8 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $128.74 (21.6% Upside)
2018 was a good year for many stocks that are part of the Dow Jones Industrial Index. So when a company is lagging behind the index, investors notice. The seven stocks in this report are all, at this writing, trading in the red for 2018. For some of these stocks, their descent into negative territory was due to the October correction. However, each of these stocks has one or more issues that are weighing on investors' minds. Whether it trades in a sector that looks to be reversing, in the process of a messy merger, or perhaps waiting on long-term plans to materialize, these seven stocks are not a clear buy as we enter 2019.
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